The Indian housing market is in continuous boom mode. However, one thing that still tends to haunt many buyers’ minds is the lack of clarity when it comes to the prices of homes. While homes by good developers are selling at a fast clip, many buyers still feel that the prices are set arbitrarily. Let’s explore how real estate developers arrive at the prices for their properties. For this, we first need to understand a concept and process called ‘price discovery’.
What is price discovery?
It is the process by which the market determines the value of a particular product. It applies to almost all products, including smart phones, costlier household items like air conditioners, refrigerators and television sets, and so on.
You have doubtlessly noticed that the prices of some of these items tend to fluctuate according to the demand for them, the state of the economy, time of year, and even the weather. Even gold items, where the price of the basic raw material is determined by its market value, also experience price hikes during the festive season. But if the economy is in doldrums and disposable income is low, even gold items will sell at a discount because of lower demand.
In the context of real estate, price discovery determines the prices at which properties reasonably sell. In India, the process of price discovery for residential real estate is complex, as it involves several factors.
1. Cost of land
One of the most important factors is the cost of land. Land is a finite resource, and its availability is limited. The cost of land can vary widely depending on its location, the availability of basic infrastructure there, and what kinds of developments the area has already seen. For all intents and purposes, there is no such thing as basic cost of land, while there may be certain basic benchmarks, the prices of different plots even in the same area can vary widely.
Developers do influence the cost of land through development activities. Announcing new projects can increase land demand in nearby areas, especially if the development enhances the area with amenities and infrastructure. Less directly, the demand from developers for land in a certain area tends to drive up the price quoted by the landowners.
More influential developers, such as those who build massive townships and industrial projects, can also influence zoning and land use changes. This increases land value by enabling more profitable developments for other developers. Large-scale developments can bring about broader economic growth, which attracts businesses and residents, thereby increasing demand and therefore land costs. In markets where some developers hold large land parcels, they control the supply, and this will also influence pricing. And, of course, government policies also play a key role. But whether they are responsible for the current land prices or not, developers must factor in the cost of this finite resource when setting the price for their properties.
2. Construction costs
Another important factor that influences the price of homes is construction costs. The amount of money a developer spends on construction materials, labour, and other expenses can vary widely depending on the city, location, nature of the project, and quality of the materials used.
Whether the project being developed falls into the luxury, mid-range, or affordable housing category also counts. The cost of relevant labour hinges on its ready availability in the area.
If the project’s location is remote and the developer breaking completely new ground there, construction labour needs to be brought in from far off and be accommodated. In the case of high-density development areas, labour tends to be more readily available.
3. Housing demand
The third factor that affects the price of housing is the demand for it. This can vary significantly depending on the location of the project and whether the project addresses the actual requirements of the target clientele. For example, a luxury development in an area largely defined by low-cost housing is unlikely to see much organic demand.
Also, demand will depend on the developer’s brand value and the amenities offered in the project. Even with good brand backing, the right location and appropriateness of the project, a developer must set the ticket sizes of his homes reasonably so as not to be ‘priced out of the market’ — meaning that prices must be in line with similar projects by other developers in the area.
What sells fast?
Given the complexity of these factors, it is not surprising that the process of price discovery in the Indian housing sector can often seem arbitrary and opaque. Developers must consider multiple factors to set the price for their properties.
One common strategy used by many — but no means all — developers is to set a base price for their properties but be open to negotiate on it with individual buyers. There is usually more scope for negotiation in the case of projects which are not seeing much sales volumes.
Finally, developers often provide discounts or incentives to buyers who purchase earlier in the project’s development cycle. This encourages buyers to commit to purchasing homes before construction is complete, helping developers to improve cash flows and reduce their financial risk.
It is also pertinent to note that the market tends to be self-correcting. If developers set excessively high prices, the demand for their properties will be lower than they expected. In fact, most buyers are looking for ready-to-move homes precisely because they’re not willing to wait.
If you’ve found a good home in the right location, in the right project by the right developer, and the price corresponds to your budget, it is safe to assume that the developer has done his homework and that ‘the price is right’.
The writer is Managing Director, Pharande Spaces.
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CHARLOTTE, N.C. (WBTV) – The Charlotte City Council will vote Monday night on a plan to sell more than four acres of land to developers who plan to build affordable housing on the site.
The city paid millions for the property but plans to sell it for a single dollar.
The property is along Reagan Drive near I-85 and West Sugar Creek Road. A Economy Budget Inn motel used to sit there, and was a hotbed for crimes, including robberies, shootings and murders.
In April 2023, the city bought the land for $4.2 million and tore the motel down. Now, the city has chosen to sell the property to Prosperity Hidden Valley.
The deal means the developer must build a minimum of 39 new townhomes to sell to families earning at or below 80% of the area’s median income. For a family of four, that is just under $80,000 a year.
The units must stay affordable for 20 years and may not be leased during that time. The purchase price of the homes will be limited and there will be down payment assistance and special mortgage financing.
City leaders said they selected the developer for its experience with creating affordable housing, especially for households impacted by racial disparities in homeownership.
Related: Charlotte leaders clash over motel demolition, move forward with project
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A Real Estate Authority complaints assessment committee issued a penalty decision in the case, fining both agents $1000 each. Photo / NZME
A Harcourts real estate agent and her supervisor have been found guilty of unsatisfactory conduct for their roles with land where subdivision was not allowed.
A Real Estate Authority complaints assessment committee issued a penalty
Occupiers moved on to a property on Ahipara’s Wharo Way in October 2021, after a significant pohutukawa tree they believed had been protected by being placed in a reserve was not protected at all.
Kaitāia GP Cecil Williams is thinking about leaving the town after 35 years, after being “forced” to sell his property, which had been occupied by a local iwi, for about $130,000 less than its Quotable Value.
Williams’ property at 1 Wharo Way, Ahipara, was first occupied in October 2021 by members of Te Rarawa who were unhappy that a culturally significant pōhutukawa on the property had been partly felled for a house site.
The iwi members were angry because they were led to believe the tree had been included in a reserve at the front of the land when it was subdivided. However, the reserve was later made smaller and the tree included in the property at 1 Wharo Way that the Williamses bought.
The iwi members felt betrayed over what were assurances the culturally significant site at Ahipara would be fully protected as a public reserve.
Williams said he and his wife, Marna, checked when they bought the section that there were no land claims or any other issues with it, and after being assured there were none, bought it for $500,000. The tree was not listed as protected or significant on the council’s website.
He said they were the innocent parties in the debacle and had done nothing wrong, yet were seriously out of pocket due to no actions of their own.
The land was occupied for almost a year before Far North District Council, in an effort to solve the impasse, agreed to buy the land from the Williamses.
At its August meeting where it agreed to buy the land, Kahika/Mayor Moko Tepania acknowledged that historic actions had seen undertakings to protect 1 Wharo Way broken. While the council would never be a default Office of Treaty Settlements, it had acknowledged there were special circumstances that led to the motion for council to negotiate the purchase of the land supported, he said.
Williams said the couple were caught in a fait accompli as they had to sell the land to the council because nobody else would buy a property that was being occupied and under such dispute.
“Who would buy land that was being occupied and nothing was being done to move the occupiers off?”
The couple are angry and upset that they had to settle with the council for $437,500 for the land when the QV valuation a year earlier was for $560,000, and feel they had no choice but to sell, given that nobody else would buy it.
At the start of the occupation, Williams offered to sell the land to Te Rarawa, or the council for the $500,000 they paid for it, and is now upset they are out of pocket by so much.
“It’s prime waterfront land, but the council’s independent valuation in September last year said it was only worth $400,000. Yet the council’s own Quotable Value in October the year before said the property was worth $560,000. I know prices have dropped a bit, but I can’t see how such a piece of coastal land has dropped by $160,000 in a year. That’s hard to take.”
FNDC has been approached for comment, but had not responded by publishing time.
Williams said the property was to be where they built their dream home to retire, but after 35 years as a GP in Kaitāia, the saga had left such a sour taste that they were seriously considering selling up their other property and moving away.
“It’s hard enough as it is to get GPs up here, but this has really hit us hard. The stress and the anxiety this has caused us, the sleepless nights and worry have been unbearable. Through no fault of our own we have now had to take a huge financial hit, and I’m upset that after all these years helping this community, we’ve had such little support and are seen as the bad guys.”
He said they were not aware the pōhutukawa was supposed to be protected or that it was supposed to have been on a reserve; had they known, they would not have bought the land in the first place.
Williams acknowledged he had stopped paying rates on the land from when the occupiers moved in because he was unable to use the land, and neither the council nor police would move the protesters off. The roughly $8000 outstanding rates were paid from the property sale price to the council.
Mike Dinsdale is the editor of the Northland Age who also covers general news for the Advocate. He has worked in Northland for almost 34 years and loves the region.
In response to a cross-department consultation on the transparency of land ownership involving trusts, Propertymark said that the compulsory regulation of property agents and the creation of a statutory Code of Practice could help the Government improve the transparency of the ownership of land involving trusts.
Laws such as the Economic Crime (Transparency and Enforcement) Act 2022 and the Economic Crime and Corporate Transparency Act 2023, have led to greater public information on beneficial owners of overseas entities, and His Majesty’s Land Registry retains a record of the legal owners of land.
These are two steps Government has taken in recent years to make it simpler to identify the ownership and beneficiaries of business and property in the UK.
However, information on who may be in control of land beyond the owner is not simple to find.
As part of a Government initiative to thwart economic crime within the housing sector and exercise powers awarded through the Levelling Up and Regeneration Act 2023, the cross-department consultation called for opinions on how the transparency of land ownership can increase further, especially where trusts possess land and where there may be extra beneficiaries or individuals who control the land.
While Propertymark welcomed the Government’s bid to enhance the transparency of the ownership of land involving trusts, the trade body said it is hard to ask for changes to be made to a lease or to sell property linked to the land as there may be central information needed for potential buyers that only the freeholder would have access to.
Also, to prevent property agents falling foul of the Proceeds of Crime Act 2002, a law designed to stop additional money laundering, having simpler access to the known owners and beneficiaries of land aids property agents to conduct the legally required anti-money laundering due diligence checks.
Though Propertymark acknowledged anxieties over privacy, it suggested that the Government could help to stop the misuse of increased transparency by implementing compulsory regulation of property agents and establish a statutory Code of Practice for property agents working in the sector.
Henry Griffith, policy and campaigns officer at Propertymark, said: “Increasing the transparency of land ownership will help resolve disputes and increase the speed at which land can be bought and sold.
“When selling land, knowing who has the final say over decision-making is vital to guarantee a speedy and successful sales process.
“Also, it can cost consumers and property agents thousands of pounds when sales fall through due to obstructions in retrieving information.
“Increasing the transparency of land ownership should prevent this. Understandably, some landowners may have concerns over how their data will be accessed, which is why it is important that we establish the regulation of property agents to ensure data is accessed and used correctly.”